On any given day, users of the popular Chinese e-commerce app Xiaohongshu are likely to run into a so-called ‘get ready with me’ video from an aspiring influencer, featuring the latest must-have skincare products. Such content has become so pervasive on the app that Xiaohongshu declared ‘efficient skincare’ as its keyword of the year in 2022.
This seemingly bottomless interest has helped China become the world’s biggest market for skincare, accounting for a retail value of approximately $41 billion last year, according to data from market research provider, Euromonitor International.
And while overall consumer spending in China remains subdued, analysts expect the skincare sector to continue to grow steadily, thanks to consumers’ increasing willingness to pay premiums for products using research-backed formulas, as well as greater interest in higher-margin products like those targeting anti-aging or skin-repair.
This week, we take a look at how the Chinese skincare industry has fared to date, and what the future has in store for the homegrown brands who are tussling with some of the global skincare giants.
CONSUMER CARE
China has seen a steady rise to become the world’s largest skin care market, and it is set to keep climbing, increasing another $17.1 billion by 2027 to a total of $62 billion, based on growth forecasts from McKinsey.
As with other countries, the pandemic altered the nature of demand, with consumers seeking out products that took a more holistic approach, shifting from a focus on facial skincare alone to full-body skincare.
Many Chinese skincare consumers now give themselves the moniker ‘skintellectual’ (成分党). This community consists mainly of high-earning women under 30, living in high-tier cities, who tend to look for clearly-labeled, niche ingredients and scientific evidence of a product’s efficacy, says Ye Chen, a research analyst from market intelligence firm ChemLinked.
The male skincare industry is also on the rise; it was worth an estimated $1.9 billion in 2020 according to market research group Mintel, which predicts it could increase by 50 percent by 2027. Male beauty influencers are becoming more prevalent on social media, with Xiaohongshu reporting an 82 percent increase in creators of male beauty and personal care content from 2021 to 2022.
The skincare sector is a relatively rare part of the Chinese economy in which foreign companies dominate; leading brands in China include the likes of L’Oréal, Estée Lauder, and Shiseido. According to L’Oréal Group’s website, China is the company’s second largest market, and for Shiseido, China made up over a quarter of its sales in the first half of 2023.
WINONA WINNING?
Despite the heavy presence of foreign brands in China’s skincare market, some homegrown firms have come to prominence. One such is Winona, a pioneer in the so-called ‘cosmeceutical’ industry — bridging the gap between cosmetics and pharmaceuticals.
Originally created in 2008 as a side-project of Dihon Pharmaceutical, a Chinese pharma firm, Winona did not get off to a good start. Dihon suffered consistent financial losses whilst operating the brand, eventually agreeing to transfer all Winona-related intellectual property and assets to Sequoia China-backed Yunnan Botanee Bio-Technology Group, according to Botanee Group’s 2021 initial public offering.
Since the transfer of ownership, Botanee has pursued a strategy of investing more in R&D, while initially keeping a narrow market focus. As a result, Winona has become synonymous with products for sensitive skin, rather than skincare in general, as noted by the group’s chief executive Guo Zhenyu in a Chinese-language interview with Forbes China in 2022.
Botanee’s investment into Winona’s public image and products appears to have paid off, netting the company $695.7 million in sales last year and securing almost one quarter of China’s dermatology-grade skincare market. In the first half of this year, Botanee has already reported $324.9 million in revenue, coming from sales of now well-established Winona products, as well as from other sub-brands in different niches like Winona Baby, AOXMED and Beforteen.
Winona does face competition from other domestic brands that have been established for longer, such as Proya Cosmetics. While Winona focuses on a niche clientele, Proya’s strategy has been to tap into a broader segment of the skincare market by focusing on the affordability aspect of its products. Proya and Winona were fourth and fifth in terms of sales respectively during e-commerce platform Taobao’s Singles’ Day last year.
“Compared to the large foreign brands, the domestic brands still have their own competitive advantages which can be difficult to imitate,” says Lisa Zhang from China-focused market research group Daxue Consulting. “[Domestic brands]…have a deeper understanding of local consumers…[they] are more agile and fast in adapting to the market changes, registering new ingredients and launching new products.”
Chris Pereira, president of consulting firm North American Ecosystem Institute, that helps businesses enter the Chinese market, says global brands need to understand that “the Chinese consumer is sophisticated and well-informed,” and rather than looking for products, “they seek solutions that are tailored to their specific skin concerns and aesthetic preferences.”
Pereira also suggests that because of past scandals related to product safety, “Chinese consumers are increasingly conscious of ingredients and product authenticity.” This can then be an opportunity for global brands “to leverage their international reputation for quality assurance,” and “build trust and loyalty among Chinese consumers.”
FORWARD FACING
While China’s domestic skincare brands are growing in popularity amongst domestic consumers, they have a way to go before reaching the same status as giants like L’Oréal, and Estée Lauder. Some of these household names are also making moves to create or acquire region-targeted sub-brands or specialty products.
This year, L’Oréal launched a product inspired by a skincare trend initiated by Proya, and Estée Lauder invested in CODEMINT, a brand founded by a famous local influencer Yangqing Zhou.
“These initiatives can show that the large skincare groups highly value the Chinese market and have high expectations on their future growth in China, which can make the whole market more competitive and pose potential threats to the domestic brands,” Zhang says.
Earlier this year, L’Oréal and Alibaba even announced a partnership seeking to “establish green and low-carbon standards,” “develop new products,” and “promote a circular economy” in China’s beauty industry.
The next step for Chinese brands seeking to reaffirm their place in the skincare market could be to incorporate developing technologies as part of their product offering. During the 2023 World Congress of Dermatology, Botanee Group outlined its plans to create a skin health ecosystem, combining skincare products along with AI-powered diagnosis and treatment systems.
Ella Apostoaie is an editorial associate at The Wire. She is a 2021 graduate of Wellesley College, where she majored in East Asian Studies, with a primary focus on Chinese history and politics. Ella grew up in Norwich, England and is now based in the Boston area.
